Bruce, PSQL looks great fundamentally, however I found some info on why it was downgraded by two firms in Feb!!
DLJ ****** DONALDSON, LUFKIN & JENRETTE ****** DLJ
February 26, 1999
PLATINUM SOFTWARE (PSQL: $8.63) *
Reducing Estimates and Rating
Range: Earnings Per Share 1999E vs 1998 % Chg
27-5 Old New P/E Ratios F1Q $0.05 vs 0.15 -67%
(FY:Dec.) 1999E $0.90 $0.70 12.3 F2Q 0.12 vs 0.19 -37%
1998E 0.72 0.50 17.3 F3Q 0.14 vs 0.16 -12%
1997A 0.68 12.7 F4Q 0.23 vs 0.19 +21%
Yield: % Market Cap.: $375 mil. 5-Yr. Growth Rate: 25%
Dividend: $ Avg. Trading Vol.(000): 600 Book Value: $
RATING: Market Perf. Change: Down From Buy 12-Mo. Target: $
VIEWPOINT
Our main thesis behind a Buy rating on PSQL was our belief that most of the
risk associated with the acquisition of DataWorks was priced into the
stock. We further believed that once the initial cross-company
integration/culture issues are resolved in 1Q, PSQL could begin to show
stable and improving quarters through 1999. Recently we began to question
these assumptions after receiving evidence of significant turnover among
the DataWorks sales force. The company talked about some attrition during
its Feb. 5 conference call, which at the time was minimal and isolated to
its West Coast operations. We believe there was a recent increase in
turnover on the East Coast and we are beginning to question PSQL's ability
to achieve our original estimates. DataWorks accounts for at least 50% of
the combined company's revenues and this pick-up in turnover will make it
difficult for that part of its business to get to plan, at least until the
sales force is fully re-built. The turnover is concentrated around one of
DataWorks' product lines (Avante) which accounts for about $40mm in license
revenues (28% of the total). We estimate that in some regions DataWorks
lost nearly half of its sales headcount in the last 4 weeks and we are
reducing estimates as a result.
Our revised '99 estimates are $279.6 million in revenue and $0.50 in EPS,
down from $304 million and $0.72. For 2000, our new estimates are $352million in revenue and $0.70 in EPS, down from $380 million and $0.90.
While the stock remains relatively inexpensive, we see few near term
positives to drive PSQL higher. We are downgrading PSQL to market
performance from a buy and will revisit the story once these initial
acquisition-related issues are resolved. We continue to believe that PSQLmanagement will be able to stabilize the business and execute in the middle-market, but near term results will be less predictable.
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